a proven innovator in interactive media

Transcription

1 Cellcast plc Annual report and accounts for the year ended 31 December a proven innovator in interactive media Company Registration No (England and Wales)

2 Contents Chairman s Statement Review of Operations Directors and Advisers Corporate Governance Statement Directors Report Independent Auditors Report Consolidated Profit and Loss Account Balance Sheets Consolidated Cash Flow Statement Notes to the Consolidated Cash Flow Statement Notes to the Financial Statements Cellcast plc Annual report and accounts

3 01 Chairman s Statement In, the Group achieved a fourth year of uninterrupted revenue growth but faced an exceptional challenge to its UK business. As a result of changes introduced by Sky to its Electronic Program Guide (EPG), the Group had to secure additional bandwidth to provide dedicated channels for each category of its diverse programme output on the Sky Digital satellite platform. The increased cost base led to a significant erosion of the Group's margins, added to which the Group faced a reduction in revenues as Sky limited interactive programming on General Entertainment channels to three hours per day. Management took immediate steps to reduce the fixed costs of its UK operations and its channel production overheads. At the same time, the Group accelerated its international distribution, which resulted in substantial revenue gains in the last quarter. The interim results statement, and various trading statements since then, have flagged the steps taken by management to adapt the UK cost base to meet the changed circumstances, which include a rationalisation of the headcount and a reorganisation of channels and bandwidth. Implementation of these measures took time, as a result of which operating losses continued into the second half of. Results Overall, the Group sustained a loss at the EBITDA level before the share option expense for the year ended 31 December of 3 million (: 327,000) and an operating loss before interest and tax of 3.9 million (: 728,000). These results take into account depreciation and amortisation charges of 575,000 (: 401,000) and an FRS20 option charge of 299,000 (: nil). However, there were significant changes in the turnover mix between and which are a pointer for the current year. In, 97% of the Group's turnover of 13.2 million came from its UK operations, almost entirely based on telco revenue sharing arrangements. In, UK revenues accounted for 59% of the Group's turnover of 21.9 million. In 2007, as a result of the rapid growth of the Group's international operations, UK revenues are expected to account for about onethird of total turnover. In, the majority of the overseas revenue came from Europe and South America, which together with Asia are markets with strong revenue and earnings potential in The Group continues to develop its new multiplatform usergenerated content network, launched as Sumo.TV in October, and in which the Group had invested 440,000 at 31 December. These launch costs were all expensed in and the Group continues to invest around 80,000 per month, which will also be expensed. The Sumo website ( attracted over 2 million unique visitors per month in the first quarter of 2007, and a priority for the Group is to build early revenues from this innovative venture. A full review of operations in is set out on pages 3 to 5 of this report. Funding The losses experienced during meant that the Group experienced significant cash outflows which exhausted the cash balances at the start of the year and required additional equity funding of some 1.2 million after expenses in August. In addition, in December, the Group sought further funding for its international expansion and negotiated a convertible loan facility of 1 million, which has been fully drawn down. The Directors believe that the combination of the additional equity and the loan facility is sufficient for the Group's foreseeable requirements.

4 02 Outlook In the first quarter of 2007, the Group saw significant increased revenues and profitability in its South American operations. The UK operations (before taking into account Sumo development costs) are now profitable after taking into account all direct costs. Nevertheless, the Group continues to pursue appropriate cost control measures. The growth and profitability of our Asian operations, particularly in India, remains a priority for International revenues currently account for over 60% of the total Group's total revenues, and we expect that to continue for the remainder of The Group's continued investment in its multiplatform technology and its associated and growing portfolio of TV formats remain a key competitive differentiator. Expanded international distribution based on a growing network of relationships with broadcasters and telecommunication companies should increase economies of scale in respect of both the development and the deployment of the Group's programme assets, and set us on the path to sustainable profitability. Julian Paul Chairman 25 May 2007 Cellcast plc Annual report and accounts

5 03 Review of Operations United Kingdom In the Group sought to consolidate its position as a leading provider of participation television programming in the United Kingdom and to build on its strong audience base. However, early in the year the Group suffered an erosion of its margins and a radically changed marketplace following the decision by Sky Digital to reorganise its Electronic Program Guide and introduce new limits on interactive programming. The changes introduced by Sky in February recategorised the diverse group of channels within 'General Entertainment' into more defined subsections. Until this time the Group had six channels in the General Entertainment section offering varied 24/7 programming. No longer able to offer a diverse broadcasting schedule for discrete audiences across different dayparts on each of these channels, the Group was forced to assume the cost of additional bandwidth to provide dedicated channels for each component of its diverse programming output. In addition to this increased cost base, the Group also faced reduced revenues from its single remaining channel in the General Entertainment section following Sky's decision to limit General Entertainment channels to three hours of interactive television per day. Encouragingly, the number of viewers and the traffic generated from their participation in the Group's interactive channels did not fall. Once the implications of Sky's EPG reorganisation became apparent, the Group took immediate steps to rationalise operating expenses, renegotiate main supplier contracts, and introduce improved cost control management systems. By the end of the year, the UK operations (before Sumo development costs) had returned to profitability after taking into account all direct costs, but before allocation of Group central overheads. Although the Group has significantly expanded its geographical reach, with international revenues growing from 3% of the Group's revenues in to 41% in, the UK remains an important component of the Group's growth strategy. It is one of the world's most competitive digital television markets, and from here the Group continues to identify, develop and test profitable new interactive applications and formats for worldwide distribution. Having a substantial portfolio of proven programming lowers the cost of entering new territories and creates the foundation for the Group's continued global expansion. Sumo.TV In the second half of, the Group marshalled its expertise in developing multiplatform applications to incubate a new usergenerated content (UGC) venture, Sumo.TV, which was soft launched in November. Sumo.TV is the world's first media network to take usergenerated content and seamlessly integrate it into TV programming, websites and mobile services. Initially launched on the Sky platform and online in the UK, Sumo.TV has been designed to enable broadcasters around the world to meet the challenges of an environment no longer dominated by television, in which audiences are increasingly switching their viewing time and loyalties to media that deliver community and social networking. Sumo.TV has attracted strong international interest from broadcasters and mobile operators. It brings together a compelling consumer proposition and a timely solution for broadcasters whose existing business model is under attack. Sumo.TV facilitates usertouser experiences that extend participation outside television transmission times. Interactive episodic content specially formatted for mobile phones provides further incremental 24/7 revenue opportunities. Shortform video is widely recognised as the digital media content with the highest growth potential over the next five years, and the longterm strategy for Sumo.TV is for the service to become a significant clearinghouse and distribution interface for both usergenerated and professional shortform multimedia.

6 04 Key technologies and discrete applications behind Sumo.TV are already expanding the range of applications and formats that the Group is able to offer to broadcasters. With the Sumo website ( attracting over two million visitors per month by the first quarter of 2007, surpassing the web traffic of Channel 5, and the combined traffic of all the MTV brands in the UK, the Group expects to build early revenues from this innovative venture. International International operations as a percentage of total revenues grew significantly through. Margins also improved dramatically. Even allowing for the cost of ongoing investment into key new markets, this resulted in the Group's international operations being profitable by the end of the year, before the allocation of Group central overheads. The Group's international strategy has two strands. The first is the straightforward purchase of airtime from TV broadcasters. In this case, the Group meets the costs of production and airtime, and retains 100% of the income received from the mobile and fixed line operators. The second is based on the Group partnering with broadcasters to coproduce localised versions of our programme formats, with revenue shared between the Group and the broadcaster after the deduction of production costs. The rapid growth of the Group's international business at relatively low cost is a demonstration of the scalability of its business model, the versatility and simplicity of its technologies, and the ease of localizing its TV formats and applications. In the Group focussed on the major developing mobile and broadcast markets of India, South America, South East Asia and China, where the broadcast, telecoms and regulatory environments variously favour both immediate and longterm returns. India is one of the fastest growing mobile markets in the world and is set to become one of the largest. Over 6 million people buy their first mobile phone every month, but it is a complex environment with significant barriers to entry, not the least of which are the country's 40 principal languages. Cellcast Interactive India was established in November. The company successfully launched its first programme Bid2Win in mid and continues to trial applications and formats localised in ten languages for the multiple domestic markets. Profitability will be achieved through increasing the number of languages and the expanded distribution opportunities resulting from this. On the back of the successful launch of its Indian subsidiary, the Group entered into partnership in Q4 with Derana TV, one of Sri Lanka's largest terrestrial broadcasters. South America has always been considered an area with major opportunities for the Group because of the continued rapid growth in mobile penetration coupled with relatively low production and media costs. The Group was the first company to launch interactive services on Telefé, the leading Spanishlanguage broadcaster in the region, giving it considerable credibility with broadcasters across the continent. The investment in resources and regional relationships through has started to pay dividends, with the Group seeing significant increased revenues and profitability in its South American operations in the first quarter of Early in the year the Group entered into a partnership arrangement with mtouche, a leading SouthEast Asian mobile entertainment company listed on the Malaysian Stock Exchange. The success of the venture's first participationtv format on Malaysia's TV3 network led to strong interest from other regional broadcasters, paving the way for future launches in Indonesia and Thailand. Further programmes are in development, and in November mtouche acquired a 7.26% strategic stake in Cellcast plc. Cellcast plc Annual report and accounts

7 05 Review of Operations continued China is the world's largest mobile phone market and continues to offer revenue opportunities for the Group's applications and programming, within a media environment subject to uncertain regulatory changes. In the Group entered into partnership with Shenzhen New Power Technology Limited to develop and distribute interactive television entertainment for the Chinese market, particularly in Guangdong Province and in Shanghai. Overall, the Group is concentrating its resources on supporting the expansion of digital cable networks across China and is looking to syndicate its output to broadcasters and mobile operators. Proprietary technology The Group continues to build on its reputation as a pioneer of innovative new multiplatform formats and as a leading developer of interactive and participation media. In the technology arm of the Group completed the design and architecture of its proprietary Media Delivery Platform (MDP), and designed and built the Cellcast Content Management System to support content delivery across television, mobile phones and the Internet. In step with the worldwide growth of 3G deployments, the Group completed the integration of inbound 3G mobile calls into its proprietary Interactive Platform (CIP) and added a 3G3D module that enables 3G videos to be mapped directly onto 3D avatars in the live environment. This will usher in a new style of participation television formats where the user not only interacts from home but appears within the show itself. The Group's multiplatform gaming proposition, based on the delivery of its programmes to machine terminals in pubs across the UK, successfully completed technical trials in. Gamestech and Inspired Gaming, who together control a majority of UK sites, have approved distribution of the first of a range of the Group's interactive programmes. The Group's immediate technologyrelated goals include the merging and consolidation of its delivery platforms (CIP, MDP, Sumo), and the utilisation of fibre ring for channel delivery over satellite and broadband/iptv. The Group is also realising new ways of monetising its investment in its proprietary technology outside its own broadcast operations and is reviewing opportunities to license its multimedia platforms and applications as white label broadcast solutions. Outlook for 2007 Having moved quickly to reorganise and restore the returns from its Sky channels, the Group is confident that its UK operations are now on the path to sustainable profitability. In 2007 the focus is on building brands with the Group's TV channels, on broadening the revenue base through leveraging new content distribution opportunities such as 3G, and offering a wider range of payment options for our customers. In this context it is worth noting that the recent introduction of credit card billing across a range of services is already generating significant incremental business. Our considerable experience of integrating new technologies and new communication channels, together with our expertise in the provision of microbilling solutions, ensure that the Group will continue to develop new products and services that capture opportunities arising from the growth of 3G, IPTV, enhanced broadband, video mobile and wireless broadband services worldwide. With the Group's UK operations now stabilised, and international operations generating a majority of revenues on the back of strategic investments in high growth media markets, the Group looks forward to 2007 with renewed confidence in the efficacy of its business model. Andrew Wilson Cheif Executive Officer 25 May 2007 Bertrand Folliet Cheif Operating Officer 25 May 2007

8 Directors and Advisers 06 Julian Paul FCA NonExecutive Chairman Julian Paul (62) is a chartered accountant who subsequently spent nearly 20 years as a commercial and merchant banker. Since 1991 he has held several senior positions with companies in the media and entertainment sector, including Castle Communications plc and TeleCine Cell Group plc. He is currently deputy chairman of Eagle Rock Entertainment Limited, of which he was a founder shareholder. He is also a nonexecutive director of Entertainment Rights plc, Inspired Gaming Group plc, Pilat Media Global plc, Stagecoach Theatre Arts plc, Ekay plc and Edge Performance VCT plc. Emmanuelle Guicharnaud Chief Financial Officer and Company Secretary Emmanuelle Guicharnaud (34) spent four years as a management consultant for Pricewaterhouse Coopers. In 1999 she joined a privately held chain of hotels with the responsibility of evaluating new acquisitions. In 2000 she relocated to the UK and took up a position as the financial controller of m Quest, a telecoms company providing value added telephony and SMS solutions that was subsequently acquired by Monstermob plc. She joined Cellcast as financial controller in Emmanuelle holds a DECF (Accountancy and Finance Diploma) from an International Business School (ESC). Andrew Wilson Chief Executive Offficer Andrew Wilson (46) cofounded Cellcast in With 20 years experience in the telecoms and information industries, he enjoys a proven track record of building innovative international businesses in related telecoms, broadcasting and new media sectors. Most recently, he has played a leading industry role in driving the global success of valueadded services such as SMS and the monetization of digital content. Before cofounding Cellcast, he served as an executive director of the Tokyo based Jasdaqlisted elux Corporation, and was chief executive officer of the publicly listed Hong Kong company enew Media. Prior to this he was a director of the international telemedia services provider VISL, and joint managing director of Marketing Solutions, a subsidiary of DDB Needham. Mike Neville NonExecutive Director Michael Neville (52) has extensive experience in capital markets and is a director of a number of public and private companies. He is currently chairman of Minmet plc, an AIM company. His background is in the telecommunications, technology and media arena, where he has worked for the last 17 years specialising in strategy, mergers and acquisitions, and turn around situations. He has worked for companies such as Cable & Wireless, United Utilities, Oz Interline Pty and OnCue Telecommunications Limited, where he has been involved in large and small scale fund raisings as well as numerous merger and acquisitions transactions in various parts of the world. Bertrand Folliet Chief Operating Officer Bertrand Folliet (41) cofounded Cellcast in He has many years experience in the telecoms, digital content and multimedia industries, and a successful record of building profitable businesses providing valueadded billing and distribution services in the international telecom sector. Before cofounding Cellcast, he served as an executive director of the Tokyo based Jasdaqlisted elux Corporation and was the chief operating officer of elux Corporation's key operating subsidiary in Hong Kong. Prior to this he was president of the publicly listed Hong Kong company enew Media. He also served as managing director of enew Media subsidiary New Media Corporation and was director of operations of company's predecessor, VISL. Before joining VISL, he was senior vice president of MatraHachette Multimedia Online. Bertrand Folliet holds a PhD in Management. Company number Registered office Business address Nominated adviser and broker Registrars Independent auditors Baker Tilly UK Audit LLP 2 Bloomsbury Street London WC1B 3ST The Registry 34 Beckenham Road Beckenham Kent BR3 4TU Financial PR Advisers Abchurch Communications Ltd. 100 Cannon Street London EC4N 6EU Bentinck House 38 Bolsover Street London W1W 6AB Bankers HSBC 196 Oxford Street London W1D 1NT Hoodless Brennan PLC HB Corporate 40 Marsh Wall London E14 9TP Solicitors to the company Memery Crystal LLP 44 Southampton Buildings London WC2A 1AP Capita Registrars The Registry 34 Beckenham Road Beckenham Kent BR3 4TU Wallace LLP 1 Portland Place London W1B 1PN Cellcast plc Annual report and accounts

9 07 Corporate Governance The company is committed to high standards of corporate governance. The board is accountable to the company's shareholders for good corporate governance. This statement describes how the principles of corporate governance are applied to the company. The workings of the board and its committees The Board The board currently comprises the nonexecutive chairman, the chief executive officer, the chief operating officer, the chief financial officer, and one other independent nonexecutive director. Concerns relating to the executive management of the company or the performance of the other nonexecutive director may be raised with the nonexecutive chairman. Their biographies appear on page 6. These demonstrate a range of experience and sufficient calibre to bring independent judgement on issues of strategy, performance, resources and standards of conduct, which is vital to the success of the company. The board is responsible to the shareholders for the proper management of the company. A statement of the directors' responsibilities in respect of the accounts is set out on page 11 and a statement of going concern is given on page 10. All directors have access to the advice and services of the company secretary, who is responsible for ensuring that board procedures are followed and that applicable rules and regulations are complied with. The appointment and removal of the company secretary is a matter for the board as a whole. The board meets regularly, reviewing trading performance, ensuring adequate funding, setting and monitoring strategy and examining major acquisitions and possibilities. The nonexecutive directors have a particular responsibility to ensure that the strategies proposed by the executive directors are fully considered. To enable the board to discharge its duties, all directors receive appropriate and timely information. Briefing papers are distributed by the company secretary to all directors in advance of board meetings. The chairman ensures that the directors take independent professional advice as required. The following committees deal with the specific aspects of the company's affairs: Nomination committee The nomination committee comprises Julian Paul and Mike Neville, and is chaired by Julian Paul. The committee is responsible for proposing candidates for appointment to the board, having regard to the balance and structure of the board. In appropriate cases, recruitment consultants may be used to assist the process. Remuneration committee The remuneration committee comprises Julian Paul and Mike Neville, and is chaired by Julian Paul. It is responsible for making recommendations to the board, within agreed terms of reference, on the company's framework of executive directors' remuneration and its cost. The committee determines the contract terms, remuneration and other benefits for each of the executive directors, including share options, pension rights and compensation payments. The board itself determines the remuneration of the nonexecutive directors. Audit committee The audit committee comprises Julian Paul and Mike Neville, and is chaired by Julian Paul. The committee meets not less than twice annually. The committee provides a forum for reporting by the company's external auditors. Meetings are also attended, by invitation, by the chief executive officer or the chief financial officer. The audit committee is responsible for reviewing a wide range of matters including the half year and annual accounts before their submission to the board and monitoring the controls which are in force to ensure integrity of the information reported to the shareholders. The audit committee advises the board on the appointment of external auditors and their remuneration both for audit and nonaudit work, and discusses the nature, scope and results of the audit with external auditors. The audit committee keeps under review the cost effectiveness and the independence and objectivity of the external auditors. A formal statement of Independence is received from the external auditors each year. Relations with shareholders The board recognises the importance of communications with shareholders. The Chairman's Statement and Review of Operations include a detailed review of the business and future developments. There is a regular dialogue with institutional shareholders including presentations after the company's preliminary announcement of the year end results and at the half year. The board uses the Annual General Meeting to communicate with private and institutional investors and welcomes their participation..

10 08 Management structure The board has overall responsibility for the company. Each director has been given responsibility for specific aspects of the company's affairs. The executive directors meet with senior executives and divisional management regularly, to discuss daytoday operational matters. Finance and accounting principles The directors and senior accounts staff are well aware of the financial and accounting policies and procedures applied throughout the company. The directors seek to comply with best practice when selecting accounting policies and preparing the accounts. The impact of new accounting policies is reviewed when they are introduced and discussed with external financial advisers, if neccessary, in order to obtain a fuller understanding. Quality and integrity of personnel The integrity and competence of personnel is ensured through high recruitment standards and subsequent training. High quality personnel are seen as an essential part of the control environment and the ethical standards expected are communicated through the corporate culture Identification of business risks The board is responsible for identifying the major business risks faced by the company and for determining the appropriate course of action to manage those risks. Budgetary process Each year the board approves the annual budget. Key areas are identified. Performance is monitored and relevant action is taken throughout the year through the monthly reporting to the board of variances from the budget, together with updated forecasts for the year and information on the key risk areas. Investment appraisal Capital expenditure is regulated by a budgetary process and authorisation levels. For expenditure beyond specified levels detailed written proposals have to be submitted to the board. Reviews are carried out after an acquisition is complete, and for some projects, during the acquisition period, expenditure is monitored and major overruns investigated. Due diligence work is carried out if a business is to be acquired. Internal audit Given the size of the company, the relative simplicity of the systems and the close involvement of senior management, the board considers that there is no current requirement for an internal audit function. This will be kept under review. Going concern Having made appropriate enquiries and having examined the major areas which could affect the company's financial position, the directors are satisfied that the company has adequate resources to continue in operation for the foreseeable future. Accordingly they consider it appropriate to adopt the going concern basis in preparing the financial statements. Cellcast plc Annual report and accounts

11 09 Directors Report for the year ended 31 December The directors present their report and consolidated financial statements for the year ended 31 December. Directors The following directors have held office since 1 January : Julian Paul FCA (Chairman) Andrew Wilson Bertrand Folliet Mike Neville Emmanuelle Guicharnaud Principal activities and review of the business The principal activity of the group was that of the provision of services in the telecommunications industry. The review of the group's activities and performance for the year and its prospects for 2007 is contained in the Chairman's Statement on pages 1 2 and the Review of Operations on pages 3 5. These deal with the business risks facing the company. Results and dividends The consolidated profit and loss account for the year is set out on page 13. No dividend is proposed (: Nil). Key performance indicators The directors monitor the performance of the business through various key performance indicators (KPIs), of which the principal ones are profitability by programme and by territory, gross profit margins by programme and by territory, and overall group profitability at the EBITDA and operating profit level. Group research and development activities During the year the group concentrated its development activities on programme format and platform development. Post balance sheet events In January 2007, the company entered into a convertible loan agreement of up to 1 million with the Headstart Funds. The facility was available for a term of two years, with interest payable at a rate of 8 per cent per annum. Headstart has the option to convert any part of the loan which is outstanding into equity at any time for a period of 360 days from the date that the relevant tranche of the loan was made available. Headstart has been issued with five year warrants in respect of 1,000,000 Ordinary Shares of 3 pence each at an exercise price of 8 pence per share. The company has also issued 355,555 new Ordinary Shares of 3 pence each to Headstart at a price of 8 pence per share as part of the agreement. By 16 May 2007, the company had fully drawn down the 1 million facility. Directors' interests The directors' interests in the shares of the company and other group companies were as stated below: Cellcast plc Ordinary shares of 3p each Andrew Wilson Bertrand Folliet Mike Neville Emmanuelle Guicharnaud Julian Paul 31 December 2,897,997 2,897, ,403 1 January 2,875,497 2,875, ,903

12 10 Substantial shareholdings Other than the directors' interests shown above, the company has been notified of the following substantial interests as at 10 May Shareholding % Ordinary shares of 3p each as at 10 May 2007 SMS Media Limited Atlas Group of Companies Limited Neil Craven mtouche Technology Berhad Hoodless Brennan Market Maker Hoodless Brennan & Partners Sardik Limited ,680,062 8,645,635 6,748,014 4,500,000 2,896,460 2,659,800 1,992,662 Share Capital Details of share capital are given in note 18 to the financial statements. Share Options The following EMI options, save those granted to Mike Neville, Julian Paul and Bertrand Folliet which are Unapproved Options, over the Ordinary shares of 3 pence each have been granted to the directors. Directors share options Option price Number granted Date of grant Andrew Wilson , September Bertrand Pierre Folliet , September Emmanuelle Guichamaud , September Julian Paul , September Michael Neville , September There have been no changes in the number of options held by the directors since they were granted. Directors Insurance Directors and officers liability insurance is held by the group. Creditor payment policy The company policy is to ensure that, in the absence of dispute, all suppliers are dealt with in accordance with its standard payment policy whereby all outstanding trade accounts are settled within the term agreed with the supplier at the time of the supply or otherwise 30 days from receipt of the relevant invoice. Trade creditor days based on creditors at 31 December were 77 days (: 55 days). Going concern Having made appropriate enquiries and having examined the major areas which could affect the company's financial position, the directors are satisfied that the company has adequate resources to continue in operation for the foreseeable future. Accordingly they consider it appropriate to adopt the going concern basis in preparing the financial statements. Cellcast plc Annual report and accounts

13 11 Directors Report continued for the year ended 31 December Auditors The directors, having been notified of the cessation of the partnership known as Baker Tilly, resolved that Baker Tilly UK Audit LLP be appointed as successor auditor with effect from 1 April 2007, in accordance with the provisions of the Companies Act 1989, s26(5). Baker Tilly UK Audit LLP has indicated its willingness to continue in office. Directors' responsibilities The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). The financial statements are required by law to give a true and fair view of the state of affairs of the company and of the group and of the profit or loss of the group for that period. In preparing those financial statements, the directors are required to: select suitable accounting policies and then apply them consistently; make judgements and estimates that are reasonable and prudent; state whether applicable accounting standards have been followed, subject to any material departure disclosed and explained in the financial statements; prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group will continue in business. The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the company and the group and enable them to ensure that the financial statements comply with the Companies Act They are also responsible for safeguarding the assets of the company and the group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The directors are responsible for ensuring that the annual report includes information required by the AIM rules. The directors are responsible for the maintenance and integrity of the Cellcast plc website. The work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the information contained in the financial statements since they were initially presented on the website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Statement of disclosure to Auditor (a) The directors who were in office on the date of approval of these financial statements have confirmed that, so far as they are aware, there is no relevant audit information of which the auditors are unaware. Each of the directors have confirmed that they have taken all the steps that they ought to have taken as directors in order to make themselves aware of any relevant audit information and to establish that it has been communicated to the auditor. By order of the board Emmanuelle Guicharnaud Secretary 25 May 2007

14 Independent Auditors Report To the Shareholders of Cellcast plc 12 We have audited the group and company financial statements of Cellcast plc for the year ended 31 December which comprise the Consolidated Profit and Loss Account, the Consolidated Balance Sheet, the Company's Balance Sheet, the Consolidated Cash Flow Statement and related notes. These financial statements have been prepared under the accounting policies set out therein. This report is made solely to the company's members, as a body, in accordance with Section 235 of the Companies Act Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors As described in the statement of directors' responsibilities the company's directors are responsible for the preparation of the financial statements in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the financial statements give a true and fair view, whether the financial statements are properly prepared in accordance with the Companies Act 1985 and whether the information given in the Directors' Report is consistent with the financial statements. We also report to you if, in our opinion, the company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors' remuneration and transactions with the company and other members of the group is not disclosed. We read the directors' report and consider the implications for our report if we become aware of any apparent misstatements within it. Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the company's and the group's circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. Opinion In our opinion: the financial statements give a true and fair view, in accordance with United Kingdom Generally Accepted Accounting Practice, of the state of the company's and the group's affairs as at 31 December and of the group's loss for the year then ended; the financial statements have been properly prepared in accordance with the Companies Act 1985; and the information given in the Directors' report is consistent with the financial statements. Emphasis of matter Going concern In forming our opinion on the financial statements, which is not qualified, we have considered the adequacy of the disclosure made in note 1.1 to the financial statements concerning the group's ability to continue as a going concern. The financial statements do not include the adjustments that would result if the company was unable to continue as a going concern. Baker Tilly UK Audit LLP Chartered Accountants Registered Auditors 25 May Bloomsbury Street London WC1B 3ST Cellcast plc Annual report and accounts

15 13 Consolidated Profit and Loss Account for the year ended 31 December Notes Turnover 2 21,977,972 13,186,663 Cost of Sales (18,211,533) (11,361,484) Gross profit 3,766,439 1,825,179 Administrative expenses (6,817,914) (2,152,528) Depreciation & amortisation (575,159) (400,908) (7,393,073) (2,553,436) Other operating income 31,209 FRS 20 charge share option expense (298,895) Operating loss 3 (3,894,320) (728,257) Loss on disposal of subsidiaries (35,726) Loss on ordinary activities before interest (3,894,320) (763,983) Other interest receivable and similar income 32,217 42,226 Interest payable and similar charges 4 (6,872) (2,683) Loss on ordinary activities before taxation (3,868,975) (724,440) Tax on loss on ordinary activities 6 64,798 Loss on ordinary activities after taxation (3,804,177) (724,440) Loss attributable to minority interests 30,684 Loss for the financial year 7 (3,773,493) (724,440) Loss per share Basic and diluted 5 (11.6)p (3.2)p The profit and loss account has been prepared on the basis that all operations are continuing operations. There are no recognised gains and losses other than those passing through the profit and loss account.

16 Balance Sheets as at 31 December 14 Group Company Notes Fixed assets Intangible assets 8 656, ,695 Tangible assets 9 1,108, ,458 Investments 10 4,933 4, , ,087 1,769,490 1,475, , ,087 Current assets Stock and work in progress 11 38,984 Debtors 12 7,081,715 2,778,267 5,491,007 1,958,217 Cash at bank and in hand 135,677 2,696, ,328,393 7,256,376 5,474,447 5,491,588 4,286,610 Creditors: amounts falling due within one year 13 (7,267,559) (2,852,147) Net current (liabilities)/assets (11,183) 2,622,300 5,491,588 4,286,610 Total assets less current liabilities 1,758,307 4,097,386 6,130,675 4,925,697 Creditors: amounts falling due after more than one year 14 (70,202) (122,278) 1,688,105 3,975,108 6,130,675 4,925,697 Capital and reserves Called up share capital 18 1,331, ,407 1,331, ,407 Share premium account 19 4,775,743 4,038,676 4,775,743 4,038,676 Merger reserve 19 1,300,395 1,300,395 Profit and loss account 19 (5,688,968) (2,214,370) 23,313 36,614 Shareholders funds equity interests 21 1,718,789 3,975,108 6,130,675 4,925,697 Minority interests 20 (30,684) 1,688,105 3,975,108 6,130,675 4,925,697 The financial statements were approved and authorised for issue by the board on 25 May Julian Paul Director Bertrand Folliet Director Cellcast plc Annual report and accounts

17 Consolidated Cash Flow Statement 15for the year ended 31 December Net cash outflow from operating activities Returns on investments and servicing of finance Interest received Interest paid Net cash inflow for returns on investments and servicing of finance Taxation Capital Expenditure Payments to acquire intangible assets Payments to acquire tangible assets Net cash outflow for capital expenditure Acquisitions and disposals Proceeds on disposal of subsidiary undertaking Cash on disposal of subsidiary undertaking Net cash outflow for acquistions and disposals Net cash outflow before management of liquid resources and financing Financing Issue of ordinary share capital Cost of share issue Issue of shares Capital element of hire purchase contracts Decrease in debt Net cash inflow from financing (Decrease)/ increase in cash in the year 32,217 (6,872) (138,393) (563,451) 1,283,220 (64,940) 1,218,280 (43,799) (43,799) (3,317,735) 25,345 70,097 (701,844) (3,924,137) 1,174,481 (2,749,656) 42,226 (2,683) (294,674) (804,384) 2 (212,548) 5,001,248 (751,244) 4,250,004 (15,364) (15,364) (669,985) 39,543 (7,053) (1,099,058) (212,546) (1,949,099) 4,234,640 2,285,541

18 Notes to the Consolidated Cash Flow Statement for the year ended 31 December 16 1 Reconciliation of operating loss to net cash outflow from operating activities Operating loss (3,894,320) (728,257) Depreciation of tangible assets 479, ,262 Amortisation of intangible assets 95,853 69,646 Loss on disposal of fixed assets 6,638 Sharebased payments charge 298,895 (Increase)/decrease in stocks (38,984) Increase in debtors (4,218,750) (2,386,412) Increase in creditors 3,960,265 2,037,138 Net cash outflow from operating activities (3,317,735) (669,985) 2 Analysis of net (debt)/funds 1 January Cash flow Other noncash changes 31 December Net cash: Cash at bank and in hand 2,696,180 (2,560,503) 135,677 Bank Overdrafts (189,153) (189,153) 2,696,180 (2,749,656) (53,476) Finance leases (8,744) 43,798 (167,719) (132,665) Net funds/(debt) 2,687,436 (2,705,858) (167,719) (186,141) 3 Reconciliation of net cash flow to movement in net debt (Decrease)/increase in cash in the year (2,749,656) 2,285,541 Finance lease 43,798 15,364 Change in net debt resulting from cash flows (2,705,858) 2,300,905 New Finance lease (167,719) Movement in net (debt)/funds in the year (2,873,577) 2,300,905 Opening net funds 2,687, ,531 Closing net (debt)/funds (186,141) 2,687,436 Cellcast plc Annual report and accounts

19 Notes to the Consolidated Financial Statements 17for the year ended 31 December Accounting policies Accounting convention The financial statements are prepared under the historical cost convention. The accounts have been prepared on a going concern basis. The directors have considered the business projections, which include detailed cash flow forecasts for 2007 and 2008 and are confident that the group has adequate resources to continue in operational existence for the foreseeable future Compliance with accounting standards The financial statements are prepared in accordance with applicable United Kingdom Accounting Standards. Basis of consolidation The consolidated profit and loss account and balance sheet include the financial statements of the company and its subsidiary undertakings made up to 31 December. Acquisitions of subsidiaries are dealt with by the acquisition method of accounting except for those qualifying as group reconstructions where merger accounting is permitted. 1.4 Revenue recognition Revenue is measured at the consideration received or receivable and represents amounts receivable for services provided in the normal course of business, net of discounts, VAT and other salesrelated taxes Licences Licence costs are capitalised and amortised over their relevant finite licence period on a straight line basis. Research and development Research expenditure is written off to the profit and loss account in the year in which it is incurred. Development expenditure is written off in the same way unless the directors are satisfied as to the technical, commercial and financial viability of individual projects. In this situation, the expenditure is capitalised and amortised over the five year period. Tangible fixed assets and depreciation Tangible fixed assets other than freehold land are stated at cost less depreciation. Depreciation is provided at rates calculated to write off the cost less estimated residual value of each asset over its expected useful life, as follows: Broadcasting equipment 20% to 50% straight line Computers, fixtures and fittings 20% to 50% straight line Leasing and hire purchase commitments Assets held under finance leases and hire purchase contracts are capitalised in the balance sheet and depreciated over their estimated useful economic lives. The interest element of leasing payments represents a constant proportion of the capital balance outstanding and is charged to the profit and loss account over the period of the lease. All other leases are regarded as operating leases and the payments made under them are charged to the profit and loss account on a straight line basis over the lease term. Investments Fixed asset investments are stated at cost less provision for diminution in value. Stock and work in progress Stock and work in progress is valued at the lower of cost and net realisable value. Pensions The Group operates a defined contribution scheme for the benefit of its employees. Contributions payable are charged to the profit and loss account in the year they are payable.

20 Notes to the Consolidated Financial Statements continued for the year ended 31 December Accounting policies continued Deferred taxation Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events that resulted in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the balance sheet date. Timing differences are differences between the group's taxable profits and its results as stated in the financial statements that arise from the inclusion of gains or losses in tax assessments in periods different from those in which they are recognised in the financial statements. Deferred tax is measured at the average tax rates that are expected to apply in the periods in which timing differences are expected to reverse, based on tax rates and laws that have been enacted or substantially enacted by the balance sheet date. Deferred tax is measured on a nondiscounted basis Foreign currency translation Monetary assets and liabilities denominated in foreign currencies are translated into sterling at the rates of exchange ruling at the balance sheet date. Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction. All differences are taken to profit and loss account. Financial statements of overseas subsidiaries are translated at the rate ruling at the balance sheet date. Exchange differences are dealt with through reserves Share based payments The group operates executive and employee share schemes. For all grants of share options, the fair value as at the date of grant is calculated using an option pricing model and the corresponding expense is recognised over the vesting period. The expense is recognised as a staff cost and the associated credit entry is made against equity. Borrowing costs Borrowing costs are recognised as an expense in the period when they are incurred. Cellcast plc Annual report and accounts